Japan's top FX official warns against excessive yen volatility

TOKYO (Reuters) - A top Japanese finance ministry official on Friday said the government would respond to wild swings in currency markets if needed, in comments analysts say were aimed at talking down the yen after its surged to a nine-month high this week.

Masatsugu Asakawa, vice finance minister for international affairs, had earlier told reporters he would closely monitor movements in currency markets after speculative trades were seen driving a sharp rise in the yen during thin holiday trade on Thursday. Japanese markets opened for their first trading day of the year on Friday after a four-day holiday.

“We will respond appropriately if needed,” Asakawa told reporters after meeting with officials from the Bank of Japan and the financial regulator to discuss the yen’s rise.

“We’ve seen currency moves with extremely high volatility. I am worried.”

The yen soared on Thursday after a shock revenue warning from Apple exacerbated concerns about a Chinese and global economic slowdown, but on Friday the yen gave up some of its gains. [FRX/]

A rising yen is a problem for Japan because it reduces exporters’ earnings from overseas and increases deflationary pressure by lowering import costs. Further gains in the currency could test policymakers’ ability to ensure stable economic growth.

Adding to expectations that the ministry was stepping up its vigilance, Asakawa said Group of 7 and Group of 20 countries have confirmed that cooperation on managing volatility in currency markets was possible if circumstances demanded it.

In 2011, G7 nations agreed to jointly intervene in the currency market to stem a sharp yen rise that complicated Japan’s efforts to deal with the impact of the devastating earthquake and tsunami.

“He is certainly sounding the alarm, but the situation now is totally different from 2011,” Tonouchi said.

Japan is exposed to weakening global demand because its manufacturing sector is heavily focused on production for exports.

The trade war between China and the United States is also a worry because Japan ships a lot of machines and electronic parts to China that are used to make finished goods destined for other markets.

Asakawa said he hopes the next round of trade talks between the two countries, scheduled for Jan. 7-8, is constructive and helps calm financial markets.

In an attempt to spur inflation, the BOJ has maintained extremely accommodative monetary policy for almost six years but has achieved little success in pushing prices higher.

As part of its monetary policy, the central bank has heavily bought government debt, prompting concerns that the BOJ has could run out of options to respond to a serious economic downturn.

When asked by reporters, Asakawa said he trusted BOJ Governor Haruhiko Kuroda’s commitment to continue with its easy policy.